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on Informal and Underground Economics |
| By: | Ognedal, Tone (Dept. of Economics, University of Oslo) |
| Abstract: | There is a growing interest in morale as a potential substitute for sanctions, encouraged by exerimental evidence that people's morale affect their economic decisions. I show that while morale may be a substitute for sanctions for each citizen, it is not a substitute in the market. In a model where employed and self-employed differ in their opportunities for tax evasion, I demonstrate that a higher fraction of tax compliant citizens may reduce social surplus and tax revenues. In contrast to sanctions, morale usually differ between individuals and this distorts the ranking of costs among sellers and willingness to pay among consumer. Tax evading sellers crowd out tax compliant sellers with higher productivity. Tax evading buyers crowd out tax compliant buyers with higher willingness to pay. As a result, improved tax morale may lead to less efficient production and exchange. Experiments show how sanctions crowd out morale in some settings. My paper points to the opposite problem in markets: Low sanctions may crowd out morale. While the paper explores the effects of tax morale only, the results apply to a wide range of areas where morale matters for peoples choices in he market, such as environmental and safety regulation. |
| Keywords: | Tax morale; Tax evasion; Norms; Sanctions |
| JEL: | D01 H26 K42 |
| Date: | 2014–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:osloec:2014_004&r=iue |
| By: | Pedro S. Martins |
| Abstract: | Several countries extend collective bargaining agreements to entire sectors, therefore binding non-subscriber workers and employers. These extensions may address coordination issues but may also impose sector-specific minimum wages and other work conditions that are not appropriate for several workers and firms. In this paper, we analyse the impact of such extensions along several margins drawing on firm-level monthly data for Portugal, a country where extensions have been widespread until recently. We find that both formal employment and wage bills in the relevant sector fall, on average, by 2% - and by 25% more across small firms - over the four months after an extension is issued. These results are driven by both reduced hirings and increased firm closures. On the other hand, informal work, not subject to labour law or extensions, tends to increase. Our findings are robust to several checks, including a falsification exercise based on extensions that were announced but not implemented. |
| Keywords: | Collective agreements, Worker flows, Wage rigidity |
| JEL: | J31 J52 J23 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:cgs:wpaper:51&r=iue |